Health Care Strategies and Update in Health Care Strategies and Update in 2013

As small business owners, we have more options than any other group of Americans to save on health care costs. The tax planning and well as cost saving strategies can be phenomenal. It simply takes a little bit of study and consulting with sometimes several different professionals to create the perfect plan for you.

Here are some health care updates and strategies to consider in 2013 that can help you save thousands of dollars when you build your ‘plan of attack’.

– Itemized Deduction for Medical expenses is further limited. If it wasn’t bad enough that 97% of Americans try to write-off their health care and are unable to do so, under the Health Care Reform Act (ObamaCare), only medical expenses above 10% of your adjusted gross income will be deductible as an itemized deduction.This means don’t try to itemize your health care expenses. We try to steer our clients away from this anyway because there are better options for small business owners.

– Flexible Spending Account (FSA) contributions are now limited to $2,500 per year. This is another major change that is terrible for the w-2 employee, and are truly a corporate fringe benefit strategy that can rarely be implemented effectively by a small business owner. Bottom line, if you or your spouse has an FSA a work “use it or you’ll lose it”, but don’t plan on it as a critical strategy and as a small business owner it’s truly useless.

– Health Insurance is 100% deductible for the small business owner. This is a huge benefit for the small business owner that the average American can’t take advantage of. A non-business owner would have to try and itemize to no avail. Make sure your CPA is aware of any and all health insurance premiums you are paying and that they are properly accounted.

– The Health Savings Account (HSA) is as strong as ever and huge opportunity for the small business owner. Now, I know you don’t have to have a small business to implement an HSA. However, as a small business owner you have much more control over your health insurance plan and can utilize creative strategies to acquire the right insurance. Now, not only are HSAs pre-tax accounts, but contributions to them are deductible from your gross pay amount on the front page of your tax return, potentially putting you into a lower tax bracket. In 2013, the tax deduction is up to $3,250 for singles and $6,450 for families. You can also spend the money tax-free; the only caveat is that the money must be spent on qualifying health care expenses (again see Publication 502). HSAs allow you to invest the money in much the same way you invest an IRA. You can even invest HSA funds in real estate.The only catch: in order to get a deduction you must have a high-deductible health insurance policy. In sum, I realize this is a BIG topic, but know that we are here for you. First, please take the time to read Chapter 7 of my new book and Appendix G (“What Your CPA Isn’t Telling You).

– The Health Reimbursement Arrangement (HRA) is a fantastic strategy for those with higher than average medical expenses. Now this strategy must be used by a small business owner, and again the average American can’t even dream of doing this. The HRA is essentially a Section 105 plan that allows you to set up your own ‘Benefit Plan’ for health care and reimburse yourself for ALL of your health care expenses – thereby getting a 100% write-off for all of your medical expenses. The only challenge can be the structure you need to use in order to make the plan work. Sometimes it takes a little extra business and certainly some attention to bookkeeping to make it happen, but again, it can be very lucrative and worth the extra time.Again, another BIG topic, but I break this down in Chapter 7 of my new book and Appendix G (“What Your CPA Isn’t Telling You).

– Long-term Care Insurance can be paid for out of your HSA or HRA. I want to be completely independent when I say that Long Term Care Insurance is something everyone over 50 needs to carefully consider.I make sure ALL of my clients are writing-off their health care expenses; this includes long-term care insurance!Those with an HSA can pay for the premiums directly out of the HSA.Those with an HRA can get reimbursed as a business write-off for their long-term care premiums.HOWEVER, the catch is that there are ‘limits’ on how much you can write-off. The limits range from $350 – $4,370 annually. For more information on the rules for long-term care as a medical expense, please see IRS Publication 502.

– The Small Business Health Care Tax Credit for Small Employers. This little gem is a literal dollar for dollar tax credit against any taxes you owe and up to 35 percent of any health care premiums you pay for on behalf of your employees. There are a number of rules, that really aren’t that bad, but require you to cover at least 50% of the cost of single (not family) health care coverage, you must have few than 25 full-time equivalent employees, and those employees must have average wages of less than $50,000 a year.

– ObamaCare taxes to try and avoid. There are two taxes to be aware of and realize the significant impact they can have.

– The Net Investment Tax is a 3.8 percent income tax that most people won’t see coming.Essentially,you will owe this tax calculated on the lesser of your net investment income or your modified adjusted gross income exceeding $200,000 for single taxpayers, and $250,000 for Married.

– The Medicare tax of .09% also kicks in on single individuals with wages or self-employment income of $200,000, and married couples with the same income over $250,000. The new legislation makes payroll planning and the use of an S-corporation for the small-business owner even more advantageous.

As you can see, there are a lot of variables to consider when designing your health care strategy. Don’t give up and keep learning!! The savings around every corner.